Charles Schwab Unveils Free “Robo Advice”

The Charles Schwab Corp (NYSE:SCHW) disclosed on Monday, October 27th that a new online advisory platform to be marketed as Schwab Intelligent Portfolios would debut in the first quarter of 2015.

By foregoing management and transaction fees, Schwab intends to be “disruptive” to competitors.

Investment allocation by a Charles Schwab computer algorithm

In a statement, Charles Schwab Corp (NYSE:SCHW) disclosed with as little as $5,000, investors will be able to open individual, joint, IRA and revocable living trust accounts that offer technology-driven automated portfolios.

The proposed service would facilitate investors with diversified portfolios using Schwab and third party low-cost exchange traded funds as the underlying securities and portfolio management provided by Charles Schwab Investment Advisory, Inc. The service would also provide access to approximately 20 globally diversified asset classes including equities, fixed income, real estate, and commodities.

The technology-driven service would provide daily portfolio monitoring and automatic rebalancing to keep the portfolios aligned to clients’ chosen investment strategies.

Fighting robo advice

In June, we carried an article titled: “Rise of The Robo Financial Advisors?” We highlighted how the whole idea behind Robo Financial Advisors is to disrupt the financial advisor space with new technology and lower costs: mainly algorithms instead of advisors; automated text messages instead of hour long meetings. Some of the leaders emerging in the space include Betterment, Wealthfront, and FutureAdvisor are trying to convey the message “ditch your father’s golfing buddy and invest like it’s the 21st century”.

A couple of weeks back, Betterment, one of the earliest robo-advisers, sent alarms through the brokerage world by going upscale and extending its automated investment program to RIAs who manage money for wealthy investors. Fidelity Investments will refer RIAs who want to test digital investing to the program.

Schwab Chief Executive Walt Bettinger said on a conference call that the new program is aimed at neophyte investors as well as “fee-sensitive” experienced investors. He indicated Charles Schwab Corp (NYSE:SCHW)’s “intelligence portfolios” threaten discount competitors and full-service brokerage giants “across the entire market”.

However, Paul Hatch, a group managing director in-charge of advisory programs at UBS AG (NYSE:UBS)’s U.S. brokerage arm, told a conference of mutual fund salesmen last week: “We are not threatened by robo-advisers”.

Though TD Ameritrade Institutional hasn’t announced a similar move, its online advisor platform by startup Trizic sits on top of TDAI’s Vdo technology and provides ‘model-based portfolio management, portfolio rebalancing, client billing and online account-opening”.